Soochow: Both ends of the insurance sector have improved, with an optimistic expectation for new premium income in 2026.

Soochow released a research report stating that both ends of the insurance sector's assets and liabilities have improved, and the sector's valuation and public fund holdings remain low. Since 2024, asset-side factors have been the driving force behind the insurance sector's market performance, with the stock market factor having a significant impact. The sector's fundamentals are good: Asset side: With the strengthening of the stock market in Q3, considering the substantial year-on-year growth in the equity investment scale of listed insurance companies, it is expected that Q3 net profit will overcome the pressure of a high base number to achieve stable performance. The stabilization of long-term interest rates is beneficial for the insurance fixed-income asset allocation. If they continue to rise in the future, it will greatly benefit the valuation of insurance stocks. Liability side: It is expected that the NBV will maintain a faster growth rate throughout the year, and further interest rate cuts will accelerate the transformation process of dividend-linked insurance, benefiting the continued improvement of liability costs. After the interest rate adjustment, insurance product predetermined interest rates are still higher than bank deposits, making them relatively attractive, leading to optimistic expectations for new single premiums in 2026. Currently, the sector's valuation and public fund holdings remain at historically low levels, and the industry maintains a "buy" rating. Key points from Soochow: Insurance stocks have significantly outperformed the market since listing Since the listing of insurance stocks on the A-share market in 2007, as of October 10, 2025, the insurance index has accumulated a 165% increase, with an excess return of 55%. In more than half of the years, excess returns were achieved, with more than 20% excess returns achieved in 2014, 2017, 2022, and 2024. The stock market trend, long-term interest rate trend, and liability performance are the three core elements driving the insurance sector Insurance company profits come from the "three differences," so the catalysts for market trends are mainly related to these factors. 1) The stock market trend has a significant impact on the investment return and current profit and loss of insurance companies. Historically, the trend of the insurance index has been highly correlated with the market trend, and a bull market is a key factor in driving the insurance sector. 2) The interest rate level is a basic factor affecting the long-term profit margin of insurance companies, which affects various factors such as product sales, investment returns, and reserve provision. Overall, an upward trend in interest rates easily stimulates independent market trends and excess returns for insurance companies. 3) Liability performance is an important aspect to evaluate the operating conditions of insurance companies, generally based on core indicators such as new single premiums and NBV. Usually, liability performance does not easily drive independent market trends, but it also has an impact on excess returns for the sector. 4) From the perspective of individual stock factors, liability performance and specific events (transformation reform, management changes) usually have a significant impact on valuation. By reviewing the five typical market trends of the insurance sector in recent years, it is found that the early trends were mainly driven by the rise of the stock market, but excess returns usually require the coordination of the long-term interest rate trend and the liability side fundamentals. 1) 2014-2015: Mainly driven by the bull market in equities and the high growth of liabilities. The significant rise in the stock market has significantly increased the investment return and ROE levels of insurance companies; the marketization reform of liability interest rates has increased the attractiveness of insurance products, leading to a substantial increase in the agent scale and historical high growth in NBV. The downward trend of long-term interest rates was an important reason for the insurance sectors inability to achieve significant excess returns. 2) 2017: Three favorable factors of interest rates, equities, and liability performance deepened the value transformation and catalyzed significant excess returns. The improvement in economic expectations in 2017 drove the upward trend in long-term interest rates, with the stock market showing a structural trend towards blue-chip stocks, benefiting the heavily-weighted insurance stocks; the bright performance of the liability side, combined with significant achievements in business structure value transformation. During this period, insurance stocks had an absolute increase of 111% and a relative return of 88%. 3) 2019: Strong stock market and liability side recovery, but excess returns were mainly driven by the upward trend in interest rates. The economic recovery in 2019, combined with loose policy trends driving the stock market's rise, increased the investment return of insurance companies, while the liability side gradually recovered growth under the impact of regulation. In the early stages of the market, amid the rangebound fluctuations in long-term interest rates, excess returns for insurance stocks were not obvious, until a significant rise in interest rates in April 2019 when significant excess returns were achieved. 4) 2020: Favorable equity and interest rate environment on the investment side, but pressure on the liability side hindered excess return performance. In Q2 of 2020, with the easing of the impact of the epidemic and the macroeconomic recovery, the stock market continued to rise, and long-term interest rates also significantly rose. However, due to pressure on new single premiums and NBV growth on the liability side, as well as a decline in human resources, although the insurance sector had an absolute increase of about 46%, the performance of excess returns was not ideal. 5) 2022-2023: Significant absolute and relative returns brought about by resonance between assets and liabilities. In November 2022, with the optimization of domestic epidemic prevention and control policies and expectations of economic improvement, the stock market surged and interest rates rose. At the same time, after a continuous decline in liabilities, new single premiums and NBV returned to positive growth, combined with a high increase in net profits in Q1 of 2023, driving a significant surge in insurance stocks. Risk warning: Downward trend in long-term interest rates; continued downturn in the stock market; slower than expected growth in new business.